The American Public Power Association (APPA), National Rural Electric Cooperative Association (NRECA) and the New York Association of Public Power (NYAPP) on Sept. 20 released a new study of the capacity market operated by the New York Independent System Operator (NYISO) and the study touts the importance of long-term contracts.
In the study, economists at Christensen Associates Energy Consulting found that there are numerous drivers of the construction of new generation other than the NYISO capacity market, including utility obligations to serve, reliability standards, renewable portfolio requirements and environmental regulations.
Also, a significant portion of the new generation has been financed not by volatile market revenues, but by bilateral contracts, utility ownership, or New York State Energy Research and Development Authority (NYSERDA) renewable energy programs. For example, 77% of the new generation planned through 2016 is being constructed under long-term bilateral contracts or utility ownership.
“The study is a welcome addition to the discussion in New York about whether to fundamentally change how utilities are able to meet the power supply needs of consumers, and we thank APPA and NRECA for helping sponsor it,” said Paul Pallas, President of NYAPP.
In contrast to the mandatory capacity markets operated by neighboring regional electricity markets in the mid-Atlantic and New England, the NYISO operates a voluntary capacity market that the study finds “provided a workable complement to the bilateral market, utility-owned supply, and NYSERDA and federal tax-supported renewable resources.”
The study, called the “New York State Capacity Market Review,” provides a comprehensive review of electricity generation built in the state between 2000 and 2012, and new generation construction planned through 2016. Based on this detailed analysis, the authors conclude that New York has succeeded in “providing generation capacity where it is most highly valued, using diverse fuels and meeting a variety of renewable resources and environmental policy goals. This success has been achieved without resorting to a mandatory forward market such as those used by PJM and ISO New England.”
“This study demonstrates that the optimal means to obtaining new cleaner generation supply is through long-term contracts or utility ownership,” said APPA President and CEO Mark Crisson. “Unfortunately, incumbent merchant generators have sought and obtained rule changes in the other capacity markets that greatly restrict such non-market avenues.”
“Municipal utilities’ and rural electric cooperatives’ ability to supply affordable power to their consumers has been adversely impacted by recent changes forcing utilities into the PJM and ISO New England markets for new capacity,” said NRECA CEO Glenn English. “This study demonstrates the wisdom of retaining a voluntary market in New York that allows for other more effective means of obtaining necessary new generation.”
Natural gas and wind dominate new capacity additions
The study pointed out that 4,426 MW of generation capacity was placed in service over the 2006 to 2012 time period. Natural gas-fired combined cycle and cogeneration units, at 66% of the total, prevailed because of their relatively low capital costs, operational efficiency and low natural gas prices, the report said. Wind turbines make up the majority of the remaining capacity additions (1,414 MW), driven by a combination of renewable portfolio standards, federal renewable resource tax incentives such as the production tax credit, and with a significant portion of that wind generation (1,003 MW, 73%) also encouraged by NYSERDA under long-term contracts.
The NYISO’s 2012 Gold Book lists 4,266 MW of proposed generation additions by class year and unit type for the period from April 2012 through June 2016, the report pointed out. About 30% of the proposed generation investment consists of wind farms in upper and western New York. Combined cycle units constitute the largest share (57%) of the proposed capacity additions, the report added.
A significant part of the proposed combined cycle units are replacing older, less efficient units, so the net addition to capacity will be less than 4,266 MW. “Nonetheless, the evidence from the proposed capacity additions strongly reinforces the historical record that New York State’s capacity market, as presently configured, is working to reliably meet load growth and fulfill environmental public policy goals,” the report added.
Based in Washington, D.C., APPA is the national service organization for the nation’s more than 2,000 community- and state-owned not-for-profit electric utilities serving 46 million customers.
NRECA is the national service organization that represents the nation’s more than 900 private, not-for-profit, consumer-owned electric cooperatives, which provide service to 42 million people in 47 states.
NYAPP is an association of nine municipal electric utilities and four rural electric cooperatives located throughout New York State.